Indicted cyber thieves used pre-paid debit cards, maniulated bank accounts to withdraw huge sums from ATMs around the world

Alberto Yusi Lajud Pena, found dead in the Dominican Republic two weeks ago, was the leader of the New York cell of an international gang of cyber thieves that authorities allege stole a staggering $45 million from ATM machines around the world.

One startling aspect of the case, sure to be closely reviewed by banks worldwide, is that Pena and his cohorts pull off the theft quickly using just 17 prepaid debit cards.

Federal prosecutors in New York on Thursday handed down indictments against Pena and seven other individuals on cyber hacking charges related to the theft. The defendants allegedly formed a New York-based cell of an international group that hacked into global financial institutions to access prepaid debit card data that they later used to steal money from ATM machines.

Pena and his co-conspirators are accused of withdrawing about $2.8 million from ATMs in NYC on two separate occasions.

In the first operation last Dec. 22, the gang withdrew $400,000 in 750 fraudulent transactions at 140 ATM locations in the city in just two hours and 25 minutes. In February, the gang withdrew close to $2.4 million in 3,000 ATM transactions in the NYC area over a 10-hour period.

Details of the operation contained in court documents provide a fascinating look both at the sophisticated methods used by the hackers, and the vulnerabilities in the banking system that allowed it to happen.

The thefts began with an extensive intrusion last December into the network of an Indian credit card processing company that handles MasterCard and Visa prepaid debit cards.

Such cards are typically loaded with a finite amount of funds and are often used by employers in lieu of paychecks and by charitable organizations to distribute emergency assistance, according to a statement by the U.S. Department of Justice.

The hackers broke into the card processing company, manipulated account balances and eliminated withdrawal limits on each of five prepaid MasterCard debit cards issued by the National Bank of Ras Al-Khaimah in the United Arab Emirates.

Such manipulation of debit card information is referred to as "unlimited operation" in the cyber underworld and requires a very high degree of technical sophistication, according to the indictment. When successful, even a small number of compromised cards can lead to a "tremendous financial loss the victim financial institution," the indictment said.

The compromised account numbers, together with PINs needed to initiate withdrawals, were distributed to cell 'managers' like Pena in different parts of the world. The stolen account numbers were used to encode magnetic stripes on the back plastic cards such as gift cards and hotel key cards and later used to initiate the fraudulent withdrawals.

The first operation, in Dec. 2012, resulted in close to $5 million being withdrawn from ATM machines around the world in about 5,700 transactions. The hackers who had broken into the card processor network used their access to monitor the withdrawals to ensure they were not shortchanged.

In February, the group pulled off the same caper, but this time by breaking into a U.S.-based credit card processor that handles MasterCard and Visa prepaid debit card transactions.

In this instance, the hackers manipulated account balances and removed withdrawal limits on 12 prepaid debit cards issued by the Bank of Muscat in Oman. The compromised account numbers were distributed to gang members in 24 countries and used to create spoofed debit cards that were used to withdraw $40 million from ATM machines.

Members of Pena's gang were identified and nabbed from surveillance tapes provided by financial institutions and by owners of the ATM machines that were robbed.

The thefts highlight continuing vulnerabilities in the payment industry said Jim Stickley, chief technology officer at TraceSecurity Inc., a Baton Rogue, La.-based company risk and compliance management vendor with several banking customers.

Stickley said that no mechanisms appear to have existed to prevent the same debit card numbers from being used over and over again to complete thousands of transactions in different countries in a very short period of time.

"It's surprising that even some level of analytics wasn't used," to spot and prevent fraudulent transactions, he said. "When they were hitting 3,000 ATMs around the world at the same time, you'd think there'd be some analytics" to detect it, he said.

It's likely that the banks did not have monitoring systems in place to track prepaid debit cards. There's little chance that the bacnk would know who purchased such cards. There's little risk to the bank with such cards, because they have already been paid for, Stickley said.

"They probably treated it somewhat differently because there is no way they can call somebody to tell them they are shutting it down," he said. "I can see how they might have never imagined a situation where someone would use the cards in this manner."

Avivah Litan an analyst with Gartner, added that the theft "could have been prevented with simple steps like privileged user monitoring and alerts when account limits are raised in this manner." Accounts limits had to be raised substantially for the crooks to get so much money she said.

Strengthening authorization on raising account limits is one way to mitigate such issues she said.

Banks, for example, can enforce dual authorization whenever someone wants to raise accounts limits in the manner that needed to have been done in this case, she said.

PIN and Chip cards could also have prevented the heist, she said. Chip-and-PIN systems use smartcards that have embedded microprocessors (or chips) rather than magnetic stripes to store cardholder data.

To use the cards at an ATM machine a cardholder needs to have the original and personal identification number. "There simply wasn't enough attention paid to simple controls that should have been put on these systems," Litan said

"The only good news here is that consumers weren't hurt. The bad news is that the payment industry still has not learned its lesson," she said. "The industry needs to implement a major change in the way cardholders are authenticated, either using chip and PIN, biometrics, or something else much stronger than a PIN."